Business Overview and History
Fortress Biotech, Inc. (FBIO) is a biopharmaceutical company with a diversified portfolio of clinical and commercial-stage assets across multiple therapeutic areas. The company's unique business model combines in-house drug development capabilities with a network of strategic partnerships, leveraging its expertise to advance innovative treatments for patients in need.
Fortress Biotech was founded in 2010 under the name Coronado Biosciences, Inc., with the goal of acquiring, developing, and commercializing pharmaceutical and biotechnology products. In 2011, the company changed its name to Fortress Biotech, Inc. to better reflect its business strategy of acquiring and advancing biopharmaceutical assets.
Over the years, Fortress has executed arrangements with leading universities, research institutes, and pharmaceutical companies to identify and evaluate promising products and product candidates. The company has built a diverse pipeline through in-licensing deals and the creation of several majority-owned subsidiaries and partner companies, including Avenue Therapeutics, Checkpoint Therapeutics, Mustang Bio, and Journey Medical Corporation.
One of Fortress's significant transactions was the acquisition of Caelum Biosciences in 2021. Caelum was developing CAEL-101, a light chain fibril-reactive monoclonal antibody for the treatment of AL amyloidosis. In October 2021, Fortress sold Caelum to AstraZeneca for an upfront payment of approximately $150 million, demonstrating the company's ability to create value through strategic acquisitions and divestitures.
Throughout its history, Fortress has faced challenges in advancing its various product candidates through clinical development and regulatory approval. Many of its subsidiaries and partner companies have had to raise additional capital through equity financings and other transactions to fund their operations. The company has also had to navigate the complex regulatory landscape, with some of its product candidates facing delays or setbacks in the approval process.
Despite these challenges, Fortress has continued to grow and diversify its business. Through its network of subsidiaries and partner companies, the company is currently advancing a range of product candidates in areas such as oncology, rare diseases, and dermatology. Fortress has also built a commercial business through its majority-owned subsidiary, Journey Medical Corporation, which markets several FDA-approved dermatology products.
Fortress Biotech's portfolio includes both wholly owned subsidiaries and investments in publicly traded partner companies. The company's subsidiaries, such as Journey Medical Corporation (NASDAQ: DERM), Checkpoint Therapeutics, Inc. (NASDAQ: CKPT), and Mustang Bio, Inc. (NASDAQ: MBIO), each focus on specific therapeutic areas and leverage Fortress Biotech's resources and expertise to drive their respective programs forward.
Financials and Operational Highlights
As of June 30, 2024, Fortress Biotech reported cash and cash equivalents of $76.20 million, providing the company with the financial flexibility to continue investing in its pipeline and operations. The company's total revenue for the six months ended June 30, 2024, was $27.93 million, primarily driven by product sales from its partner company, Journey Medical.
Fortress Biotech's net loss for the six-month period ended June 30, 2024, was $67.85 million, reflecting the company's ongoing investment in research and development (R&D) activities across its diversified portfolio. The company's R&D expenses for the same period totaled $37.49 million, highlighting its commitment to advancing its pipeline.
It's worth noting that Fortress Biotech's financial results can be impacted by the performance of its partner companies, which are publicly traded and subject to their own market dynamics. The company's consolidated financial statements incorporate the results of these subsidiaries, which can contribute to the variability of Fortress Biotech's overall financial performance.
For the most recent fiscal year (2023), Fortress Biotech reported revenue of $84.51 million, a net loss of $60.64 million, operating cash flow (OCF) of -$128.23 million, and free cash flow (FCF) of -$136.32 million. In the most recent quarter (Q2 2024), the company reported revenue of $14.90 million, a net loss of $10.95 million, OCF of -$21.84 million, and FCF of -$21.84 million. Year-over-year revenue decreased by 14%, primarily due to lower product sales at Journey Medical.
The company's operations have resulted in significant net losses, with an accumulated deficit of $721.2 million as of June 30, 2024. Fortress Biotech relies on a combination of cash on hand, equity/debt financing, and revenue from partner companies like Journey to fund its research and development activities.
Liquidity
Fortress Biotech's liquidity position is supported by its cash and cash equivalents of $76.20 million as of June 30, 2024. This provides the company with a financial cushion to fund its ongoing operations and research activities. However, given the capital-intensive nature of biopharmaceutical development, Fortress Biotech may need to seek additional funding through various means, such as equity offerings, debt financing, or strategic partnerships, to support its long-term growth and development plans.
The company's debt-to-equity ratio stands at 3.92 as of June 30, 2024. Fortress Biotech has a $50 million senior secured credit facility with Oaktree, of which $35 million was drawn as of June 30, 2024. The facility has a maturity date of July 2027. The company's current ratio is 1.37, and its quick ratio is 1.24, indicating a relatively stable short-term liquidity position.
Pipeline and Product Portfolio
Fortress Biotech's pipeline includes a diverse array of product candidates in various stages of development, ranging from early-stage preclinical programs to late-stage clinical trials. The company's lead assets include:
1. Cosibelimab (Checkpoint Therapeutics): A potential treatment for metastatic or locally advanced cutaneous squamous cell carcinoma (cSCC), currently under review by the U.S. Food and Drug Administration (FDA) with a PDUFA goal date of December 28, 2024.
2. DFD-29 (Journey Medical): An investigational modified-release oral minocycline for the treatment of rosacea, which received FDA approval in November 2024 and is expected to be launched in late Q1 or early Q2 of 2025.
3. MB-106 (Mustang Bio): A CD20-targeted, third-generation autologous CAR T-cell therapy being evaluated for the treatment of Waldenstrom's macroglobulinemia, with promising early-stage data.
Fortress Biotech's partner companies also have their own developmental pipelines, further diversifying the company's overall drug portfolio and potential revenue streams.
The company operates in two main product segments: Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development. The Dermatology Product Sales segment primarily generates revenue from the sale of products through Journey Medical Corporation. Journey's actively marketed dermatology products include Qbrexza, Accutane, Amzeeq, Zilxi, Exelderm, Luxamend, and Targadox. For the six months ended June 30, 2024, this segment generated $27.89 million in net product revenue, which decreased by 4% compared to the same period in the prior year. The decrease was mainly due to lower unit sales volume for products like Qbrexza, Amzeeq, and Zilxi. A significant portion of the revenue from this segment is derived from products without patent protection, which face competition from generic versions and other competitor products.
The Pharmaceutical and Biotechnology Product Development segment focuses on the development of Fortress' and its partner companies' pharmaceutical and biotechnology product candidates. It does not currently generate any product revenue, as the products are still in various stages of development. For the six months ended June 30, 2024, this segment incurred $37.49 million in research and development expenses, which decreased by 44% compared to the same period in the prior year. The decrease was primarily due to reduced spending at Mustang Bio and Checkpoint Therapeutics.
Risks and Challenges
As with any biopharmaceutical company, Fortress Biotech faces a number of risks and challenges, including the inherent uncertainties of drug development, regulatory approvals, and market competition. The company's reliance on its partner companies and the performance of their respective assets can also introduce additional layers of risk and volatility to Fortress Biotech's overall financial and operational results.
Furthermore, Fortress Biotech's complex corporate structure, with multiple subsidiaries and investments, can present challenges in terms of coordinating and aligning the strategic priorities of the various entities. The company must also navigate the regulatory and financial reporting requirements associated with its publicly traded partner companies.
Industry Trends and Market Position
Fortress Biotech operates in the biopharmaceutical industry, which has seen a compound annual growth rate (CAGR) of approximately 7-8% over the past 5 years. This growth has been driven by factors such as an aging population, increased prevalence of chronic diseases, and advancements in biotechnology and drug discovery techniques.
The company primarily operates in the United States, which remains the largest pharmaceutical market globally. Fortress Biotech's diversified portfolio and focus on both rare diseases and more common conditions like dermatological disorders position it to potentially capitalize on various market opportunities.
Outlook and Conclusion
Fortress Biotech's diversified business model and strategic partnerships provide the company with a unique opportunity to capitalize on the potential of its pipeline while mitigating some of the risks inherent in the biopharmaceutical industry. The company's recent approval of DFD-29 for the treatment of rosacea and the ongoing review of cosibelimab by the FDA highlight Fortress Biotech's ability to advance its assets through the regulatory process and bring new treatments to patients.
As Fortress Biotech continues to execute on its growth strategy, investors will be closely watching the company's ability to manage its complex portfolio, generate sustainable revenue streams, and demonstrate progress in its clinical development programs. The company's long-term success will depend on its continued ability to identify, acquire, and successfully develop innovative therapies that address unmet medical needs.
The company's financial performance, particularly in its Dermatology Product Sales segment, will be crucial to watch as it faces challenges from generic competition and market dynamics. Additionally, the progress of key pipeline assets like cosibelimab and MB-106 could significantly impact Fortress Biotech's future prospects and valuation.
While Fortress Biotech faces significant challenges, including ongoing net losses and the need for continued capital infusion, its diverse portfolio and unique business model provide multiple avenues for potential value creation. The company's ability to navigate the complex landscape of drug development, regulatory approvals, and commercialization across its various subsidiaries and partner companies will be critical in determining its long-term success in the competitive biopharmaceutical industry.